Belief: If Trump wins, markets will tank, gold will go up. If Hillary wins, markets will rally.
Confirmation Bias: All kind of data was mined and displayed. This is the 2nd/3rd longest bull run in history. It wont last. A Trump victory will result in flight of capital from equity and into safe haven assets.
Reality: Today the Dow Jones has hit 20,000. It was 18200 odd on November 8th 2016 when Trump won.
Now we dont know how the year will pan out but it sure has started well.
Markets and equity markets in general are all about the narrative. Humans are very uncomfortable with uncertainty and randomness Everything has to have some explicible cause. Hence there will be multiple stories with healthy doses of hindsight how they saw a rally or crash coming.
At this stage I must introduce this excellent book by Michael Mauboussin called The Success Equation. Michael does a great job of explaining how luck and skill impact various professions.
There is a very thin line between conviction in your idea and having a confirmation bias. But then that is what makes investing challenging.
I hope you enjoyed reading the blog. If there is any feedback or comment please feel free to write to me or in the comments section below.
And also contribute to my campaign http://thenudge.ketto.org/anishpteli
Regards
Anish
QED Capital
Confirmation Bias: All kind of data was mined and displayed. This is the 2nd/3rd longest bull run in history. It wont last. A Trump victory will result in flight of capital from equity and into safe haven assets.
Reality: Today the Dow Jones has hit 20,000. It was 18200 odd on November 8th 2016 when Trump won.
Now we dont know how the year will pan out but it sure has started well.
Markets and equity markets in general are all about the narrative. Humans are very uncomfortable with uncertainty and randomness Everything has to have some explicible cause. Hence there will be multiple stories with healthy doses of hindsight how they saw a rally or crash coming.
At this stage I must introduce this excellent book by Michael Mauboussin called The Success Equation. Michael does a great job of explaining how luck and skill impact various professions.
Below is the luck and skill continuum. Investing and trading fall somwhere closer to luck than to skill. Not to say that there is no skill there but chance plays a big role.
So how do we avoid falling prey to confirmation bias?
- Seek out data contrary to your belief
- Try to disprove your own theory
- Talk to someone who is not invested in the outcome of your idea
There is a very thin line between conviction in your idea and having a confirmation bias. But then that is what makes investing challenging.
I hope you enjoyed reading the blog. If there is any feedback or comment please feel free to write to me or in the comments section below.
And also contribute to my campaign http://thenudge.ketto.org/anishpteli
Regards
Anish
QED Capital
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